Puerto Rico’s electric authority wants to delay payments to bondholders for five years, a move some analysts think may be a preview of the commonwealth’s strategy in dealing with its other debt.
The plan, disclosed last week, would postpone more than $600 million a year in payments and enable the utility, known as PREPA, to refurbish its power plants.
A source told The Bond Buyer that representatives from PREPA have been talking with advisers to Puerto Rico and the Government Development Bank, indicating they were “trying to set themselves up for their other debt negotiations.”
PREPA faces $8.1 billion in debts. During the proposed five-year moratorium on payments, no principal would be paid and interest would be reduced to 1%.
The idea of delaying debt payment has been floated by Gov. Alejandro Garcia Padilla, who said last month Puerto Rico’s debt “is not payable” and was looking for a “negotiated moratorium with bondholders.”
Puerto Rico is struggling with about $73 billion in debt. A government-appointed group is charged with crafting a proposal to restructure the debt. Its plan is due by Sept. 1.
Creditors: Default isn’t necessary
Meantime, a report backed by bondholders said the government can pay its bills without defaulting on its debt.
“Puerto Rico has a deficit problem, not a debt problem,” the report said. The “deficit is fixable and extensive history exists of other governments that made similar or greater fiscal adjustments and subsequently grew their economies.”
It said Puerto Rico has about 18 different debt-issuing entities that are responsible for the debt. “Each entity has its own legal particularities and financial capacities and thus each should be considered individually.”
The report was written by three former economists with the International Monetary Fund consulting with the Centennial Group, which was retained by funds holding $5.2 billion in Puerto Rico’s General Obligation debt.
The report said Puerto Rico’s deficit as a percentage of GDP has been shrinking and cites another analysis commissioned by the government – the “Krueger Report” – for fiscal and structural reform ideas that “demonstrates the ability of Puerto Rico to generate a growing surplus.”
The problems plaguing PREPA are at the forefront of Puerto Rico’s financial woes and are seen as hampering its overall economy. The utility is overstaffed, inefficient and overly reliant on oil to generate power, and its rates are exceedingly high.
A group representing funds that own 40% of PREPA’s debt last week called for an $8.1 billion debt exchange. Payments would be delayed several years and the utility would be given $2.5 billion to upgrade its grid.
A spokesman for the utility, however, rejected the plan as not providing “a path for a successful restructuring.”
